Forex buffer rises to $93.3 billion in June

MANILA, Philippines — The country’s foreign exchange buffer rose steadily to hit an all-time high of $93.32 billion as of  end-June from $93.29 billion  a month earlier as the national government continues to tap the offshore debt market for more funds to soften the blow of the global coronavirus pandemic, according to the Bangko Sentral ng Pilipinas (BSP).

The central bank said the country’s gross international reserves (GIR) increased by $30.5 million month-on-month, reflecting inflows mainly from the national government’s foreign currency deposits with the BSP.

However, the BSP said the inflows were offset by the foreign currency withdrawals made by the national government to pay its foreign currency debt obligations.

To date, the Department of Finance (DOF) has raised a total of $5.3 billion in concessional budgetary support from the country’s development partners including the World Bank, Asian Development Bank, Asian Infrastructure Investment Bank, among others to help cover the yawning deficit resulting from the need to spend big on measures to provide relief to pandemic-affected sectors, beef up the country’s healthcare capacity, and keep the economy afloat.

In the commercial market, the government raised $2.35 billion from a global bond offering in late April that fetched the Philippines’ lowest ever coupon in the US dollar market

The Philippines also secured a total of $126 million in grants and loans from its development partners for various COVID-19 specific projects, including the purchase of emergency medical supplies and equipment and a food distribution program for the poorest households in Metro Manila.

On the other hand, domestic sources accounted for P1.2 trillion in gross domestic borrowings from the beginning of the year to support the national budget. The national coffers also received a total of P149 billion in remittances from government-owned and-controlled corporations (GOCCs) since the start of the year.

The GIR is the sum of all foreign exchange flowing into the country and serves as buffer to ensure that it will not run out of foreign exchange that it could use in case of external shocks.

According to the BSP, the GIR is enough to cover 8.4 months’ worth of imports of goods and services and payments of primary income. Moreover, it can cover 7.3 times the country’s short-term external debt based on original maturity and 4.8 times based on residual maturity.

“The end-June 2020 GIR level represents an ample external liquidity buffer,” the central bank said.

BSP Governor Benjamin Diokno said earlier the GIR level may  hit an all-time high of $95 billion this years, higher than the revised target of $90 billion.

Robert Dan Roces, chief economist at Security Bank, said the record-high reserves continue to provide good buffer for the peso to ensure structural support from external shocks.

“Moving forward, we expect reserves to continue with its record build-up stepwise with payments financing needs such as imports and debt service, especially with the current economic climate where there could be very little export earnings and remittances,” Roces said.

Likewise, UnionBank chief economist Ruben Carlo Asuncion said the peso has been the best performing currency year-to-date, translating to the steady rise of the Philippines’ external position.

“However, I still see the peso, towards the end of 2020, to weaken as trade performance recovers. In particular, the government’s plan to ramp up infrastructure spending to help the economy re-start from the coronavirus pandemic impact,” Asuncion said.

The peso has appreciated to its strongest in more than three years and continues to trade within the 49 to $1 range.